The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas may have to explore creating a ‘two-tier’ regulatory structure for the benefit of investment managers and their funds that want to access the European Union (EU) market, Tribune Business was told yesterday.

Aliya Allen, the Bahamas Financial Services Board’s (BFSB) chief executive, said that while it had been “critical” for this nation to maintain access to the EU capital markets via recent regulatory agreements, this was likely to be only the first step in a complex process.

Noting that the EU’s Alternative Investment Fund Managers Directive (AIFMD) was a multi-step process, Ms Allen said the Bahamas would eventually have to “figure out when and how to comply” with its plans to do away with private placement investment fund structures.

But, for now, the Securities Commission’s Memorandum of Understandings (MoUs) with its European counterparts have maintained the Bahamian funds industry’s competitiveness and market share, and ensured this jurisdiction is still attractive to the Latin American fund managers it is targeting.

Describing the continued EU access as “incredibly important” for the Bahamian funds industry, Ms Allen said the BFSB had brought the potential issues to the Securities Commission’s attention, and worked with it to develop a response, as AIFMD developed.

“When resolutions were passed and deadlines formed, we got a legal opinion that we shared with the Securities Commission, which said it was critical we secured an MoU to ensure we retained access to the EU markets,” Ms Allen told Tribune Business.

She explained that multiple steps were involved in the AIFMD process, and the MoU had not addressed complying with the directive itself, merely maintaining the status quo from a regulatory perspective.

“What this does is ensure we have the information sharing process in place, and this process is consistent with our obligations under IOSCO ‘Category A’,” Ms Allen told Tribune Business.

“This ensures, at least until 2015, that on a private placement basis, which is the arrangement most jurisdictions have in place with EU countries, we are able to ensure our funds have continued access and are able to market those funds to the EU.”

Ms Allen said AIFMD compliance ultimately called for “one type” of investment fund structure and manager, and involved doing away with the private placement structure - a typical strategy used in marketing and selling funds to investors.

“The next step is to figure out when we comply, how we comply, and if we can have a regime to accommodate fund managers who want to market in the EU, and fund managers that might not have that focus,” Ms Allen told Tribune Business.

“That’s going to require lot of work by regulators, Government and the funds industry in the next few years.”

She described a ‘two-tier’ regulatory structure for EU-focused and non-EU focused funds as “the ideal position”, but one that had yet to be fully explored by either the Bahamas or other jurisdictions.

While acknowledging that questions might be asked over how important a market the EU was, Ms Allen said the Bahamas still had “significant funds with significant assets” wanting to access Europe and solicit investments.

Referring to the MoUs, the BFSB chief added: “I think it proves the Bahamas is in step with international best practices when it comes to regulatory matters, and also that we will take the steps necessary to preserve the market share we do have.”

Explaining that it would also boost the Bahamas’ efforts to attract Latin American fund managers to domicile in this nation, Ms Allen said: “If we didn’t have these agreements with the EU, it would restrict them from using the Bahamas, as they couldn’t access those markets.

“Though we’re focusing on Latin America, the EU market is a key and integral part to ensure we get that business.”